SANTIAGO, May 11 (Reuters) - LATAM Airlines , Latin America's largest airline, reported a swing to profit in the first quarter, broadly in line with expectations, as fuel costs fell and Latin American currencies stabilized.

The company, which was formed in the 2012 merger of Chile's LAN and Brazil's TAM, said net income was $102 million in the three months to end-March.

That compared to a Reuters forecast for a profit of $97 million. It made a loss of $40 million in the same period last year.

Revenue fell to $2.3 billion from $2.8 billion a year ago.

The airline has struggled to fulfill the hopes behind its merger, held back by tough economic conditions and weakening currencies in the region.

It has reported a full-year loss for the last four years in a row, and has said that its future recovery will be pinned to that of its key Brazilian market, which is mired in a deep recession and a political crisis with the impeachment of President Dilma Rousseff looming.

"We continue seeing a very challenging scenario in Brazil," said head of investor relations Gisela Escobar at a presentation to reporters. "As well as all the volatility that the political process is generating, business demand is not improving."

The company said that it was accelerating capacity cuts in the Brazilian domestic market, aiming to shrink capacity as much as 12 percent in 2016, from a prior forecast of 8 to 10 percent.

It also announced further fleet restructuring. Last quarter it had said that it wanted to reduce three-year fleet purchase commitments by almost $3 billion.

"Now, having done that, we are evaluating and negotiating further opportunities to reduce our total fleet assets by another $2 billion to $3 billion," the company said.

Planemakers have said they are accommodating struggling South American airline customers by allowing delays and shifting stock to clients in stronger economies. (Reporting by Antonio de la Jara and Rosalba O'Brien; Editing by Bill Rigby)